Business Topics Clawback Flashcards
Who can investigate a companies or individuals actions prior to insolvency?
- liquidator
- administrator
- trustee in bankruptcy
What are the types of transactions that can be set aside?
Preference
- intentionally putting creditor in better position on liquidation
Transaction at undervalue
- property gifted or sold at under value
Fraudulent Trading
- carrying on business of company with intent to defraud creditors
Wrongful trading
- director carries on business when they know/ought to know company has no reasonably prospect of avoiding insolvency
What are the requirements for preference?
Action to put them in better position
- granting security on existing loan
Intention
- intention to prefer the creditor
- assumed if connected person
Time
- within 6 months of onset of insolvency
- 2 years if connected person
When is the onset of insolvency? (liquidation, administration and bankruptcy)
Company Compulsory Liquidation
- date of presentation of petition
Voluntary Liquidation
- date it enters liquidation
Administration (earlier of two)
- files notice of Intention to Appoint Administrator; or
- date it entered administration
Individuals
- presentation of bankruptcy petition
What effect does preference have?
Transaction voidable at discretion of court. Can order:
- any property be returned
- any proceeds of sale be returned
- any security discharged
Requirements for transaction at an undervalue (Companies)?
Property that would have been part of bankrupt estate
- gifted or sold at undervalue
Time
- within 2 years of company insolvency
Insolvency requirement
- must have been insolvent at time of transactions; or
- become insolvent as a result of transaction
- presumed insolvent if to connected person
Transaction at undervalue (individuals)?
Property that would have been part of bankrupt estate
- gifted or sold at undervalue
Time
- within 5 years individuals bankruptcy
Insolvency Requirements
- presumed if made within 2 years of bankruptcy petition
- presumed if to connected person
- if between 5-2 years then must show was bankrupt/became bankrupt due to transaction
What is the effect of a Transaction at undervalue?
Transaction voidable at discretion of court. Can order:
- any property be returned
- any proceeds of sale be returned
Is there a defence to transactions at undervalue?
Company
- transaction was entered in good faith;
- for purpose of carrying on business; and
- when it was made there were reasonably grounds for believing it would benefit company
Is granting a security a transaction at undervalue?
No - but may be preference
What is required for fraudulent trading?
Director or any other person
Carries on business of company
With intent to defraud creditors
What are the consequences of fraudulent trading?
Liable for personal contributions to companies assets as court orders
also criminal offence
Requirements for Wrongful Trading?
Directors know of ought to know insolvency is unavoidable
Fail to take adequate steps to minimise loss to creditors
What are the consequences of wrongful trading?
Court may order directors to contribute to companies assets as the court deems appropriate
Is there a defence to wrongful trading?
If directors shows:
- they took every step with view to minimising losses to creditors after becoming aware that liquidation was unavoidable
- should at least have taken professional advice
